Macroeconomics Chapter 1 pdf-1.pdf

Macroeconomics Chapter 1
Economics is the study of how people make choices under conditions of scarcity and
the results of those choices for society.
• the main problem in today’s society is there is a rising amount of scarcity
• economics is split into two categories:
1. Microeconomics - study of individual choices under scarcity and the
implications of these choices for the behavior of prices and quantities in
individual markets
2. Macroeconomics - study of the performance of national economies and the
policies that governments use to try to improve that performance
until 1930’s there was no distinction between these two categories
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• Alfred Marshall (1842- 1924) was an economist of the nineteenth and twentieth
centuries who published “The Principles of Economics” (1890) and whose inﬂuence
on economics continues to this day
• John Keynes (1883- 1946) was a British economist whose “General Theory of
Employment, Interest and Money” (1936) is widely regarded as the seminal work that
strongly inﬂuenced today’s developments
• during the 1930’s, previously accepted theories could not satisfactorily explain why
many of the leading capitalist economies failed to recover from depressed output and
high unemployment
• Macroeconomics was thus started to begin thinking of the economy as a whole
• economists learn from and contribute to the other social sciences
• “Economics is the queen of the social sciences”
• models are based on assumptions are are often expressed in mathematical equations,
or with a combination of words, tables and graphs
• an economic model is a representation of an economic reality that highlights the
particular variables and the relationships among them
a rational decision maker is someone with clear objectives who behaves logically to
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achieve those objectives
Adam Smith (1723- 1790) was a Scottish economist who wrote “The Wealth of
•
Nations” (1776) which is probably one of the most inﬂuential economics book ever
written
• economists generally recognize that the assumption is not always realistic and have
explored the consequences of making other assumptions about human behavior in
certain settings Macroeconomics Chapter 1
• Alfred Marshall focuses more on rational decision making and is classiﬁed into
neoclassical economics
• John Keynes theories take a broader view, arguing that i